The ASX share market is an excellent place to find investments that can provide monthly passive income, whether that's $50 per month, $500 per month or even more.
Australian companies are capable of providing investors with dividends (and franking credits), unlocking a pleasing level of income for those who want it.
Every business that pays a dividend has a dividend yield, so we can work out how much we'd need to invest to unlock a desired level of income, such as $500 per month or $6,000 per year.
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How to generate $500 of monthly income
Receiving $6,000 of annual passive income is a worthy goal – it's a sizeable level of cash each year.
How much money it would require essentially depends on the dividend yield of the portfolio.
For example, if the portfolio had a 6% dividend yield, then it would take a portfolio value of $100,000 to generate $6,000 of annual passive income.
With a portfolio dividend yield of 5%, the required portfolio value is $120,000.
A portfolio dividend yield of 4% would mean a portfolio value of $150,000 is needed.
If the portfolio dividend yield was 3%, then you're talking about needing a portfolio value of $200,000.
Clearly, all of those figures would require quite a lot of investment cash.
It's important to note that the higher dividend yields may not be as 'safe' as lower dividend yields.
Additionally, I wouldn't expect as much growth from high-yielding shares compared to lower-yielding ones over time. This is because a high yield indicates a high dividend payout ratio, with reduced cash held by the business for growth investing. A lower price/earnings (P/E) ratio also suggests the the market isn't assigning much value to growth opportunities.
Benefit from compounding
We don't need to come up with all of that cash ourselves to invest for the passive income.
Aussies can regularly invest into the ASX share market and let compounding grow the portfolio balance for you. The longer you let your money grow, the less you need to invest yourself. Names like MFF Capital Investments Ltd (ASX: MFF) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) springs to mind as ideas for this tactic.
For example, if someone were to invest $1,000 per month and it returned an average of 10% per year (the historical long-term average return of the ASX share market), it would grow into $100,000 after seven years, $150,000 after nine years and $200,000 within 11 years.
That shows that an investor starting with nothing could start generating useful passive income for their life fairly quickly. Today is a great day to get started.
